NEWSLETTER: Series I Savings Bonds are an Attractive CD Alternative

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Series I Savings Bonds are an Attractive CD Alternative

IF YOU ARE SAVING FOR A SHORT-TERM GOAL OR WANT TO GET A BETTER RETURN ON A PORTION OF YOUR EMERGENCY FUND, THIS MIGHT BE AN IDEA FOR YOU!

Series I Savings Bonds (I Bonds) are not new. They are US Treasury bonds with an inflation-adjusted interest rate.

They are in the news right now because the interest rate just adjusted to 9.62% in May 2022.

I Bonds have a composite interest rate that resets every May and November. The fixed rate for I Bonds is currently 0%, but they have an inflation-adjusted rate that just reset.

 

Here are some characteristics of I Bonds

  • There is a one-year minimum holding period
  • If you redeem an I bond within 5 years, there is a 3-month interest penalty
  • I Bonds can only be purchased on TreasuryDirect.gov (or directly with your federal tax refund)
  • You can purchase up to $10,000 in I Bonds per person per year (and up to an additional $5,000 in paper bonds, using your Federal Tax Return)
  • When you buy an I Bond, you get the current interest rate for 6 months from the date the bond is issued
  • When you redeem your I Bond, the interest is taxable on your tax return that year. Alternatively, you can elect to pay tax on the interest accrued each year.

 

Possible uses for an I Bond include your travel fund, a wedding fund, or a portion of your emergency fund if you are comfortable tying up money for a one-year period.

The strategy would be to buy the I Bond, hold it for at least 12 months and then use the proceeds. If interest rates remain favorable, hold the I Bond until the funds are needed.

This idea may not be appropriate for everyone, but if you are interested in learning more, please give us a call.

Additional Details

  • You can buy an I Bond in your name AND in the name of your revocable trust. This doubles the amount of cash you can invest in I Bonds in a calendar year. In this case, you will create an individual account AND an entity account at TreasuryDirect.gov. This is allowed even though both accounts will use the same Social Security number.
  • If you have a business, you can also buy an I Bond in the name of your business. To buy an I Bond for a minor child, you can open a TreasuryDirect account for the child that is linked to your own TreasuryDirect account.
  • When you buy an I Bond, it is wise to name a beneficiary for the bond. That makes things much smoother for your estate.
  • The TreasuryDirect.gov web site can be tricky to navigate. Since this is almost an exclusively online strategy, the higher returns may not be worth the aggravation if you are concerned about dealing with a new online account.

 

Please be advised that the contents of this post is for educational purposes only and should not be understood as investment advice.